Thursday, January 31, 2019

The corporate-state media lives in terror that the truth will somehow leak out of the corporate-Imperial fortress, imperiling their jobs and perks.

It's not exactly news that the Alternative Media is under assault: skeptical inquiry and dissenting narratives are smeared as "fake news," and new suspiciously corporate entities (NewsGuard et al.) claim to be "protecting" consumers from "fake news" as cover for their real agenda, which is limiting public exposure to skeptical, dissenting independent analysis.

Social Media and Search corporations are also censoring non-corporate, non-state media, again under the purported guise of stripping out "fake news."

Despite this semi-official censorship, we in the Alt-Media are having way more fun that the anxiety-ridden serfs in the Mainstream Media. There are many hard-working, honest journalists slaving away in the Mainstream (more accurately, the corporate-state) Media, but there's the neofeudal reality of their employment: If what they report undermines the ruling elites, they're not allowed to do their job.

MSM journalists have no agency: they report what they're told to report. They also have no control over what gets by their employers' editorial / corporate filters: question a big advertiser and your report will quietly be buried. Question the approved narrative and conclusion, and you'll be shunned, blacklisted, etc. If you make a fuss, you'll be let go in the next round of lay-offs.

Everyone who labors in the corporate-state media lives in fear of the truth getting out: hence the full-spectrum freak-out whenever an insider turns leaker / whistleblower: oops, the happy-story cover is blown and the ugly truth is now revealed, including the collusion of the corporate-state media. (In the U.S. PBS / NPR is the quasi-state media, analogous to Japan's NHK, Britain's BBC or France's France24.)

The corporate-state media lives in terror that the truth will somehow leak out of the corporate-Imperial fortress, imperiling their jobs and perks. Their job isn't to report any truth that lays waste to the self-serving interests of the ruling elites; their job is to protect the ruling elites by "reporting" politically-correct narratives and playing up culturally divisive incidents to distract the masses from any awareness of their political invisibility and lack of financial independence or agency.

The MSM's other job is to scrub any mass dissent from their "news." So for example, U.S. corporate-state media coverage of the yellow vest movement in France is near zero. This is not random; it is all part of skewing the "news" to meaningless controversies and fawning politically correct / approved narratives stories.

A working-class rebellion against political and financial invisibility is anathema to America's ruling elites and their corporate allies in the MSM and hence the minimal coverage. You basically have to understand French to follow on-the-ground Alt-Media coverage in France of the yellow vest protesters.

The American MSM dutifully regurgitates the bogus narrative being pushed by France's elitist corporate-state media, that the yellow vest protesters are violent and thus need to be crushed by overwhelming paramilitary force. That the protesters are being beaten and provoked to respond to state-ordered violence is left unreported.

We in Alt-Media are confident the truth will eventually come out despite the efforts of the ruling elites and their MSM / social media corporate minions. It's a lot more fun being on the side of skeptical inquiry and dissent than being behind the leaky dike, anxiously trying to stop the actual facts of the matter from entering the public awareness.

It's more fun being on the side of free inquiry and meaningful analysis than being on the side of censorship, fear-mongering, propagandistic sowing of discord and the promotion of the corporate-state party line.

You won't find any MSM reporting on the neofeudal structure of America's economy and society:

Wednesday, January 30, 2019

The social media space is absolutely ripe for a new entrant who demands arduous verification and constantly monitors its user base to eliminate cloned and fake accounts.

How many accounts on Facebook are fake? Recent estimates of half could be low. Here's an experiment: open a Facebook account with a name that cannot possibly be anyone else's real name, for example, Johns XQR Citizenry. Solicit a few real people to friend you, start posting something original every day and see what happens.

Eventually, your friends will inform you that "Johns XQR Citizenry" solicited them to friend him, even though they're already friends with you. Congratulations, your Facebook identity has been cloned.

When you do a search, you find a half-dozen "Johns XQR Citizenry," and every one of these cloned accounts is completely empty: no photo, no content. They were obviously set up for the sole purpose of cloning your identity to propagate spam to your friends list and then their friends' lists.

So you flag the clone accounts as per Facebook's instructions, and the (automated) response comes back "the account you flagged does not violate our community standards." So in other words, cloning identities on Facebook is just fine.

Next, you try to find some way to report the cloning to Facebook--there's isn't any way.

How difficult would it be for Facebook's vaunted AI screens to identify cloned accounts? Same name, empty account, delete, block the IP. How hard is that?

Then you start getting friends' requests from fake accounts: accounts with a photo of a supposedly legitimate person with a photo or two of a sunset for content and that's all.

These requests from fake accounts soon outnumber the legitimate requests from real people.

Add up the clone accounts and the fake accounts, and one wonders if the total number of fake accounts is more than half of all Facebook accounts. The question that naturally arises is: what's Facebook worth if half or more of its 2.2 billion accounts are fake?

What's Facebook worth when it can't even weed out the most obvious cloned and fake accounts? What's it worth if perhaps it doesn't want to eliminate all those fake accounts?

This raises another question: how can any social media company verify a "real identity" from a fake identity? The only way to do so is to institute a process much like opening an online bank account, a process that requires identification, deposits into an existing account and so on.

How much is it worth to users to join a social media network that works diligently to weed out fake accounts? How different would their experience be if it was extremely difficult to set up a cloned or fake account instead of super-easy to do so?

Many people conflate an addiction to screens with an addiction to Facebook.People are indeed addicted to their smartphones and related screens, but that doesn't mean they're addicted to Facebook.

The social media space is absolutely ripe for a new entrant who demands arduous verification and constantly monitors its user base to eliminate cloned and fake accounts. The number of "real" accounts in such a network would be a fraction of the existing debauched networks, but then users could actually trust that network. Advertisers would finally be able to trust that their millions of dollars in spending isn't going mostly to click-fraud farms.

Tuesday, January 29, 2019

Wealth is flowing to those who earn money from their human capital and enterprise.

So you want to get rich: OK, what's the plan? If you ask youngsters how to get rich, many will respond by listing the professions the media focuses on: entertainment, actors/actresses, pro athletes, and maybe a few lionized inventors or CEOs.

The media's glorification of the few at the top of these sectors masks the statistical reality that those who attain wealth in these pursuits number in the hundreds or perhaps thousands, not in the millions. As in a lottery, the odds of joining such a limited group are extremely low.

There are 330 million Americans and 150 million people reporting income, so statistically, the odds of getting rich improve significantly if we focus on joining the ranks of the 11 million people who are getting rich from their human capital rather than on the few thousand people earning big bucks in music, film, sports, etc.

As I noted yesterday in The "Working Rich" Are Not Like You and Me, the nature of work and capital is changing. Markers that were once scarce--college degrees, for example-- are now abundant, and have lost their scarcity value. What's scarce isn't credentials--what's scarce are skills that generate productive problem-solving: human capital.

Work has been commoditized, that is, sliced and diced into processes that can be semi-automated or performed by workers anywhere in the globalized economy. Just as college degrees have been commoditized, so has the work the graduates are qualified to perform. The scarcity value of commoditized credentials and skills is low, and as a result, wages for commoditized work are low.

As noted yesterday, wealth is flowing to those who earn money from their human capital and enterprise: the income going to business owners dwarfs that going to the relative handful of highly paid CEOs or passive owners of stocks.

There are 11 million enterprise owners, and 1.1 million of these are reporting substantial incomes. These owners aren't passively receiving dividends and interest; they're running enterprises. When they retire or die, the profits of their company drop by 75%. It wasn't the physical or financial capital they owned that was making the big money, it was their skills, values and experience.

It's very tough to make money competing against global corporations and cartels, and so it's no surprise that many of the most successful business owners are in sectors that place a premium on skilled labor, i.e. labor that cannot be completely automated or commoditized.

As the research mentioned yesterday explained, having control of how your income is taxed is extremely advantageous. Employees earning big money in states with high income tax rates may be paying almost half of much of their wages in taxes: 7.65% in Social Security and Medicare taxes, 32% or 35% federal taxes and state income taxes of around 10%. (The details are in yesterday's post.)

Business owners can elect to pass through some of their income as profits, which are taxed at roughly half the rate of total taxes levied on wages (20% compared to 40%). That 20% reduction in tax burden adds up, and is a key reason why business owners get rich while high-wage employees struggle to get ahead.

There's another advantageous strategy to getting rich that is not politically correct, so it must be mentioned in whispers: marry someone who is highly skilled, ambitious, thrifty, kind and who has productive values. Getting rich on one income is much more difficult than getting rich on two incomes, especially if the savvy couple lives on one income and invests the other income in their own high-skill enterprise.

Sunday, January 27, 2019

Rising income inequality may be a reflection of the changing nature of work.

F. Scott Fitzgerald's story The Rich Boy included this famous line: "Let me tell you about the very rich. They are different from you and me." According to a recent paper published by the National Bureau of Economic Research (NBER),Capitalists in the Twenty-First Century (abstract only), the "working rich" are different from you and me, and from the Oligarchs above them who pay little in U.S. income taxes due to offshore tax havens and philanthro-capitalist tax avoidance scams.

Before we start complaining about the rich not paying their fair share, let's note that the top 3% of taxpayers--mostly "working rich"-- pay more than 50% of all income taxes. The latest available IRS data is from the 2016 tax year, as reported by Bloomberg: Top 3% of U.S. Taxpayers Paid Majority of Income Tax in 2016.

The top 1% paid 37% of all income tax collected,the top 5% paid almost 60% and the top 10% paid about 70%. What's striking is the progressive nature of taxes compared to the income of each bracket: the top 1% earned about 20% of total income but paid 37% of the income tax, the top 5% earned 35% and paid almost 60% of the income tax and the top 10% earned 46% of the income and paid 70% of the tax.

So what distinguishes the "working rich" from the Oligarch rich? The Oligarch rich collect passive, rentier income from the ownership of assets: stocks, bonds, real estate, etc. The "working rich" are owners of companies, and most of their income comes from human capital, meaning their knowledge, expertise and experience. According to the NBER authors' research, when these "working rich" owners retire or die, business income tanks by 75%.

In contrast, the passive income from financial/physical assets continues on unchanged even if the owner retires or dies.

The "working rich" have a few tax advantages in terms of their effective tax rate, but the bottom line is they pay most of the income taxes collected by the U.S. Treasury. The "working rich" are not tax cheats like the super-wealthy revealed by the Panama Papers; they're the ones doing the heavy lifting of paying most of the $1.7 trillion in income taxes (which doesn't include the payroll taxes of Social Security and Medicare, with employees and employers each paying 7.65% of wages/salaries).

While a high-earner employee's tax rate is 35% above $200,000 (and 6.2% up to $132,000 for Social Security taxes and 1.45% Medicare taxes on all earned income), business owners can shift much of their income from earnings (wages/salaries) to profits or long-term capital gains, which are taxed at lower rates.

This is the key difference between employees and the "working rich": the working rich, as business owners, can elect to pay themselves a salary but distribute most of their income as profits or long-term capital gains, which are taxed at 15% up to $425,800 and 20% on everything above that level.

Despite this advantage, the top 1% paid an effective tax rate of 26.9% compared to 15.6% for the top 50% of taxpayers while the top 5% paid 23.5%.

The other key finding of the NBER paper is that the "working rich" kept most of the gains earned by their enterprises: rather than distributing much of these gains to employees, the business owners increased their share of net profits, a trend which has fueled the income inequality so many of us have been scrutinizing.

Why is this occurring? I have a theory. I doubt this theory lends itself easily to quantification, so it may be difficult to support statistically, but here goes: business owners are keeping more of the net gains because the commoditization of labor has reduced the incentives to retain the most experienced employees.

In terms of human capital, the gains in productivity accrue to those with long experience in difficult, high-value tasks. The most experienced employees make the most money for the firm because they can solve problems faster and more effectively than employees with less experience.

But once labor has been commoditized, i.e. sliced into discrete tasks, long experience no longer pays dividends. In a commoditized labor force, paying higher wages to retain senior workers simply doesn't make business sense. The most profitable way to manage employees is hire the least-experienced workers, get them up to speed and then keep their wages more or less the same. If they leave for another job, the tasks they were performing can be learned by new employees relatively quickly because they've been commoditized.

Now that even inexperienced workers are scarce in many regions, businesses are having to pay more wages and offer more flexibility to get replacement workers. But the modest rise in wages (roughly 3%, if recent estimates are accurate), are much less than the gains being accrued by successful privately owned companies.

In other words, rising income inequality may be a reflection of the changing nature of work: to streamline and automate work, labor has been commoditized wherever possible so the tasks can be performed by anyone with some training anywhere in the world.

The days in which the senior workers held the most profitable knowledge in their heads, and employers who wanted to secure strong profits paid senior workers handsomely to keep them, are largely gone. Would you pay someone $30 an hour when someone getting $20 an hour produces the same output? No wonder the "working rich" are keeping most of the gains for themselves: there's not much incentive to reward seniority if seniority is no longer adding to the enterprise's core human capital.

Thursday, January 24, 2019

The funny thing about slashing your budget to survive a recessionary storm is that it works wonders whether the recession is deep or shallow.

We know that after 10 years of expansion, a recession is baked in. Trees don't grow to the moon, etc.

We also know that some people will hardly notice the recession while others are devastated. I addressed this in The Recession Will Be Unevenly Distributed(January 10, 2019). A retiree on Social Security and a bit of income from Treasury bonds isn't going to be affected much, and a power couple in Washington DC who are high up the food chain in the federal government will also shrug off the recession.

What we don't know is what kind of recession we're going to get. It's been almost 40 years since the U.S. experienced a "real recession," i.e. a downturn that was severe and not limited to narrow slices of the economy.

The recession of 2008-09 was over before it started, and the damage was largely limited to the speculative housing-mortgage sectors and finance and everyone who was over-leveraged in the housing market.

The recession of 2000-02 was limited to the tech sectors that were exposed to the dot-com meltdown and investors in speculative dot-com companies.

The recession of 1991-92 was brief and shallow by historical standards.

The "real recession" of 1981-82 laid waste to numerous sectors and spread devastation throughout the economy. Interest-sensitive industries were crushed, and this impacted sectors such as government that are typically impervious to recessions.

Even further back, the Oil Shock recession of 1973-74 was also an economy-wide upheaval.

Those pundits who aren't denying a recession is baked in are busy assuring us it will be a mere slowdown. What the well-paid pundits of the status quo can't or won't discuss is the economy's fragility and vulnerability to self-reinforcing declines.

I've often discussed this systemic fragility as buffers have been thinned and transparency has been replaced with asymmetric information. The neofeudal-rentier structure of our economy is brittle, inflexible and grossly inefficient. As a result, a "downturn" will unleash a tsunami as opaque, brittle skims and scams break down.

Few participants are expecting a "real recession" and so they're ill-prepared for a "real recession." Discussing how to weather a recession is akin to discussing oral hygiene and home maintenance: everyone nods their heads at the same old advice, but they don't actually clean their gutters.

It's easy to lulled into believing every recession will be short and shallow, and the effect on one's own household will be modest. But "real recessions" are not short and shallow, and they impact the entire economy, not just a few sectors.

Recessions slash income but leave fixed costs--rent, auto and student loan payments, mortgages, etc.--untouched. It sounds too obvious to be useful but if incomes decline while major expenses remain unchanged, that's a problem for every household and entity with high fixed costs.

Put another way: fewer bad things can happen to households and entities with no debt and low fixed costs.

The solution to high debt/fixed costs in expansive eras is to increase income.Very few people manage to increase their incomes in recession; most suffer declining income and higher fixed costs as local governments raise taxes to cover shortfalls in their revenues.

The age-old advice to survive recessions is: get rid of debt, diversify the household's income streams, slash fixed costs and build up some savings.

The more radical the slashing of debt and fixed costs the better. Assuming the household will have to survive a 50% drop in income is a good place to start.

Selling (overpriced) assets to liquidate debt is one way to get rid of debt payments. Eating 95% of all meals at home slashes food/dining expenses, eliminating media subscriptions (and reducing the time spent staring at screens) cuts fixed costs, and so on.

The funny thing about slashing your budget to survive a recessionary storm is that it works wonders whether the recession is deep or shallow. If your income doesn't take a hit, then you're saving money to buy recession-discounted assets or spend on important purchases later without having to go into debt.

If your income does take a significant hit, you're already prepared.

Look at what the 1% own and what the bottom 80% own. The bottom 80% "own" debt and the top 1% owns income-producing businesses and assets. Who is better prepared to survive a "real recession"? Those with zero debt and income streams they control.

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